This month at the REIN meetings in Edmonton and Calgary, our "Tales from the Trenches™" dealt with one of those 'Basic' issues that we teach and train about at least a couple of times per year. "Basic" is when Tales reviews things that all real estate investors meet and deal with, deal after deal.
This month it was that perennial question, "how much time do I need to close?"
My teaching on this ultra-important point is that you should have your closing day 30 days after removal of final conditions (35 days if you are out of province). 30-35 days gives lots of time for the realtors and lenders to get everything to a lawyer. It allows time for problems, trouble, mistakes and delay that are way more common than you think.
At the meeting this month I had six or seven examples of trouble mistakes and delay. I can hear some of you saying, "but Barry, do you really need 30 days?" Not always. And, yes, of course, deals can be closed quicker.
Sometimes that's a negotiating technique to get you a deal. One of our members just beat out eight other offers to buy a property $60,000 under market and one of the deciding factors was that he said he would close quickly. Nothing wrong with that. You have a little stress and a little more in legal fees, but it's worth it for the $60,000 pop.
But, that's not the norm. Troubles, problems and delay are way more common.
How do I know that? Just in the last 10 days (10 days folks!) here are different scenarios causing heartburn for our members and us at RMLO.
- Mortgage funds didn't turn up on closing day from the lender. When we called them, it took half a day til they told us the mortgage advance had been lost and they would have to re-issue the cheque. 2 day delay.
- A recent offer on a rural property had an incomplete legal description. These are hard to track down. 4 day delay speaking to the realtor, the county and the lender.
- Brand-new deal with incorrect legal descriptions on the offer and the mortgage. 2 days to reconcile. 8 days after final condition removal, still no mortgage instructions. Lender says they've sent, but we don't have.
- The interest rate and payment amount do not match in the lender’s Statement of Disclosure and Commitment Letter. Client says they are correct in the commitment letter. Lender says it's the Statement of Disclosure that takes precedence. 4 days to get the lender to acknowledge there is an issue and then they re-issue the commitment letter instead of correct statement of disclosure. 2 more days to fix. Total 6 days delay.
- Our members are purchasing in a corporate name. As always the lender wants personal guarantees. Our husband and wife members should have applied in their married names. Somehow the lender wants the personal guarantee of the wife in her maiden name. 3 days delay so far while we try and get new instructions from the lender.
- Our seller client is executor of his father's estate. Told us it was a clear title property. Our title search shows an old mortgage from 1996. The buyer's lawyer quite rightly demands that we get rid of that old mortgage. The seller says it was paid off years ago, nothing owing.
Unfortunately, the seller has no proof and the bank says, so far, that they have been unable to locate anything with respect to that long. However, they still don't want to discharge. $500,000 remains in trust.
So, there you have it. What happens to chew up those 30 days? Stuff happens and lots of it. Every month we, and other law firms, come up against and have to solve these kinds of issues. Do yourself a big favour. We know you can't always, but try your best to get 30(35) days to close after final condition removal. Don’t put yourself in the position of having to ask the seller for an extension. Remember, sellers don’t have to give you an extension. Reduce your (and our) stress and don’t pay extra legal fees.